Targeting the Poor Using Community Information

Governments and aid agencies target transfers to the poor, but audits to deter the rich are costly. This paper analyzes how community information can reduce targeting costs. If each community is given a hard budget constraint, then targeting costs can be substantially reduced by asking recipients to make reports about each other. Such a scheme is immune to collusion. Community information is of no help in targeting, however, if (a) it cannot be veri…ed by audits or (b) the government cannot commit to a hard budget constraint.